New mega-players in the markets

business-times.asia1.com.sg :

There's a new group of investors who collectively hold more than US$3 trillion in assets and who have started to invest aggressively, including in equities, high-yield bonds and real estate. An interesting annex in the IMF's latest Global Financial Stability Report discusses the changing behaviour of Asian central banks when it comes to investing their reserves. The numbers as at April: US$895 billion for China, US$841 billion for Japan, US$260 billion for Taiwan, US$223 billion for Korea, US$219 billion for Russia, US$154 billion for India, US$127 billion each for Hong Kong and Singapore, and more than US$50 billion for half-a-dozen others. Total: more than US$3 trillion.

All this does not mean there will be a sudden tidal wave of cross-border investments in Asia. Ever cautious, central banks are likely to move gradually in increasing limits on aggressive investments overseas. Certainly, they would not want to move out of existing US dollar-denominated investments too rapidly - which could precipitate a sharp decline in the value of the dollar and shrink the value of their remaining dollar holdings.

However, the trend is clear. Major new players - both official and private - are entering Asian financial markets, some of them for the first time. This has huge implications for markets for equities, bonds, other financial instruments and real estate. It also portends a major expansion of Asia's asset management business. New financial centres will rise in the region, and existing centres will face both new challenges and new opportunities.

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